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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-37616
 
THE RMR GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Maryland47-4122583
(State of Organization)(IRS Employer Identification No.)
 
Two Newton Place, 255 Washington Street, Suite 300, Newton, MA 02458-1634
(Address of Principal Executive Offices)                            (Zip Code)
Registrant’s Telephone Number, Including Area Code 617-796-8230
Securities registered pursuant to Section 12(b) of the Act:
Title Of Each ClassTrading SymbolName Of Each Exchange On Which Registered
Class A common stock, $0.001 par value per shareRMRThe Nasdaq Stock Market LLC
 (Nasdaq Capital Market)
Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided in Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No
As of May 6, 2021, there were 15,413,191 shares of Class A common stock, par value $0.001 per share, 1,000,000 shares of Class B-1 common stock, par value $0.001 per share, and 15,000,000 shares of Class B-2 common stock, par value $0.001 per share outstanding.



Table of Contents
THE RMR GROUP INC.

FORM 10-Q

March 31, 2021
 
Table of Contents

Page
 
 

2

Table of Contents
PART I. Financial Information
Item 1. Financial Statements
The RMR Group Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
(unaudited)
March 31,September 30,
20212020
Assets
Current assets:
Cash and cash equivalents$376,252 $369,663 
Due from related parties81,189 82,605 
Prepaid and other current assets8,554 3,877 
Total current assets465,995 456,145 
Property and equipment, net2,319 2,299 
Due from related parties, net of current portion11,428 7,764 
Equity method investment7,330 7,467 
Equity method investment accounted for under the fair value option16,872 12,152 
Goodwill1,859 1,859 
Intangible assets, net of amortization256 277 
Operating lease right of use assets34,085 34,663 
Deferred tax asset22,466 23,900 
Other assets, net of amortization139,019 143,727 
Total assets$701,629 $690,253 
Liabilities and Equity
Current liabilities:
Other reimbursable expenses$50,587 $56,079 
Accounts payable and accrued expenses27,750 16,984 
Operating lease liabilities4,735 4,407 
Employer compensation liability2,463 4,298 
Total current liabilities85,535 81,768 
Operating lease liabilities, net of current portion31,171 32,030 
Amounts due pursuant to tax receivable agreement, net of current portion27,789 27,789 
Employer compensation liability, net of current portion11,428 7,764 
Total liabilities155,923 149,351 
Commitments and contingencies
Equity:
Class A common stock, $0.001 par value; 31,600,000 shares authorized; 15,413,191 and 15,395,641 shares issued and outstanding, respectively
15 15 
Class B-1 common stock, $0.001 par value; 1,000,000 shares authorized, issued and outstanding
1 1 
Class B-2 common stock, $0.001 par value; 15,000,000 shares authorized, issued and outstanding
15 15 
Additional paid in capital108,932 106,622 
Retained earnings300,087 286,249 
Cumulative common distributions(109,443)(96,983)
Total shareholders’ equity299,607 295,919 
Noncontrolling interest246,099 244,983 
Total equity545,706 540,902 
Total liabilities and equity$701,629 $690,253 
See accompanying notes.
3

Table of Contents
The RMR Group Inc.
Condensed Consolidated Statements of Income
(amounts in thousands, except per share amounts)
(unaudited)
Three Months EndedSix Months Ended
March 31,March 31,
2021202020212020
Revenues:
Management services$40,242 $43,321 $80,989 $90,596 
Incentive business management fees620  620  
Advisory services1,129 780 1,715 1,627 
Total management and advisory services revenues41,991 44,101 83,324 92,223 
Reimbursable compensation and benefits13,159 12,823 26,384 25,670 
Reimbursable equity based compensation1,206 (290)4,209 658 
Other reimbursable expenses75,208 84,227 174,593 182,202 
Total reimbursable costs89,573 96,760 205,186 208,530 
Total revenues131,564 140,861 288,510 300,753 
Expenses:
Compensation and benefits30,586 30,122 60,080 60,319 
Equity based compensation1,752 302 5,313 1,884 
Separation costs 385 4,159 645 
Total compensation and benefits expense32,338 30,809 69,552 62,848 
General and administrative7,104 7,297 13,364 14,343 
Other reimbursable expenses75,208 84,227 174,593 182,202 
Transaction and acquisition related costs296 373 413 1,169 
Depreciation and amortization251 246 489 502 
Total expenses115,197 122,952 258,411 261,064 
Operating income16,367 17,909 30,099 39,689 
Interest and other income204 1,500 435 3,375 
Equity in earnings of investees303 324 727 579 
Unrealized (loss) gain on equity method investment accounted for under the fair value option(3,402)(2,200)4,720 (762)
Income before income tax expense13,472 17,533 35,981 42,881 
Income tax expense(1,992)(2,612)(4,748)(6,336)
Net income11,480 14,921 31,233 36,545 
Net income attributable to noncontrolling interest(6,539)(8,453)(17,395)(20,628)
Net income attributable to The RMR Group Inc.$4,941 $6,468 $13,838 $15,917 
Weighted average common shares outstanding - basic16,256 16,186 16,254 16,181 
Weighted average common shares outstanding - diluted31,280 31,186 31,254 31,181 
Net income attributable to The RMR Group Inc. per common share - basic
$0.30 $0.40 $0.84 $0.98 
Net income attributable to The RMR Group Inc. per common share - diluted
$0.30 $0.39 $0.81 $0.96 
See accompanying notes.
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Table of Contents
    
The RMR Group Inc.
Condensed Consolidated Statements of Shareholders’ Equity
(dollars in thousands)
(unaudited)
Class A Common StockClass B-1 Common StockClass B-2 Common StockAdditional Paid In CapitalRetained EarningsCumulative Common DistributionsTotal Shareholders' EquityNoncontrolling InterestTotal Equity
Balance at September 30, 2020$15 $1 $15 $106,622 $286,249 $(96,983)$295,919 $244,983 $540,902 
Share grants, net— — — 1,012 — — 1,012 — 1,012 
Net income— — — — 8,897 — 8,897 10,856 19,753 
Tax distributions to Member— — — — — — — (2,820)(2,820)
Common share distributions— — — — — (6,230)(6,230)(4,500)(10,730)
Balance at December 31, 202015 1 15 107,634 295,146 (103,213)299,598 248,519 548,117 
Share grants, net— — — 1,298 — — 1,298 — 1,298 
Net income— — — — 4,941 — 4,941 6,539 11,480 
Tax distributions to Member— — — — — — — (4,459)(4,459)
Common share distributions— — — — — (6,230)(6,230)(4,500)(10,730)
Balance at March 31, 2021$15 $1 $15 $108,932 $300,087 $(109,443)$299,607 $246,099 $545,706 
Balance at September 30, 2019$15 $1 $15 $103,360 $257,457 $(72,194)$288,654 $240,381 $529,035 
Share grants, net— — — 634 — — 634 — 634 
Net income— — — — 9,449 — 9,449 12,175 21,624 
Tax distributions to Member— — — — — — — (3,830)(3,830)
Common share distributions— — — — — (6,195)(6,195)(4,500)(10,695)
Balance at December 31, 201915 1 15 103,994 266,906 (78,389)292,542 244,226 536,768 
Share grants, net— — — 1,271 — — 1,271 — 1,271 
Net income— — — — 6,468 — 6,468 8,453 14,921 
Tax distributions to Member— — — — — — — (4,156)(4,156)
Common share distributions— — — — — (6,194)(6,194)(4,500)(10,694)
Balance at March 31, 2020$15 $1 $15 $105,265 $273,374 $(84,583)$294,087 $244,023 $538,110 
See accompanying notes.
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The RMR Group Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
Six Months Ended March 31,
20212020
Cash Flows from Operating Activities:
Net income$31,233 $36,545 
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization489 502 
Straight line office rent47 72 
Amortization expense related to other assets4,708 4,708 
Deferred income taxes1,434 465 
Operating expenses paid in The RMR Group Inc. common shares2,329 2,000 
Equity in earnings of investees(727)(579)
Distributions from equity method investment864 705 
Unrealized (gain) loss on equity method investment accounted for under the fair value option(4,720)762 
Changes in assets and liabilities:
Due from related parties(419)16,223 
Prepaid and other current assets(4,677)802 
Other reimbursable expenses(5,492)(15,332)
Accounts payable and accrued expenses11,036 1,863 
Net cash from operating activities36,105 48,736 
Cash Flows from Investing Activities:
Purchase of property and equipment(758)(352)
Net cash used in investing activities(758)(352)
Cash Flows from Financing Activities:
Distributions to noncontrolling interest(16,279)(16,986)
Distributions to common shareholders(12,460)(12,389)
Repurchase of common shares(19)(95)
Net cash used in financing activities(28,758)(29,470)
Increase in cash and cash equivalents6,589 18,914 
Cash and cash equivalents at beginning of period369,663 358,448 
Cash and cash equivalents at end of period$376,252 $377,362 
Supplemental Cash Flow Information and Non-Cash Activities:
Income taxes paid$6,266 $6,320 
Fair value of share based payments recorded$4,209 $658 
Recognition of right of use assets and related lease liabilities$1,669 $39,746 
See accompanying notes.
6


The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands, except per share amounts)


Note 1. Basis of Presentation
The RMR Group Inc., or RMR Inc., is a holding company and substantially all of its business is conducted by its majority owned subsidiary, The RMR Group LLC, or RMR LLC. RMR Inc. is a Maryland corporation and RMR LLC is a Maryland limited liability company. RMR Inc. serves as the sole managing member of RMR LLC and, in that capacity, operates and controls the business and affairs of RMR LLC. In these financial statements, unless otherwise indicated, “we”, “us” and “our” refer to RMR Inc. and its direct and indirect subsidiaries, including RMR LLC.
As of March 31, 2021, RMR Inc. owned 15,413,191 class A membership units of RMR LLC, or Class A Units, and 1,000,000 class B membership units of RMR LLC, or Class B Units. The aggregate RMR LLC membership units RMR Inc. owns represented 52.2% of the economic interest of RMR LLC as of March 31, 2021. We refer to economic interest as the right of a holder of a Class A Unit or Class B Unit to share in distributions made by RMR LLC and, upon liquidation, dissolution or winding up of RMR LLC, to share in the assets of RMR LLC after payments to creditors. A wholly owned subsidiary of ABP Trust, a Maryland statutory trust, owns 15,000,000 redeemable Class A Units, representing 47.8% of the economic interest of RMR LLC as of March 31, 2021, which is presented as a noncontrolling interest within the condensed consolidated financial statements. Adam D. Portnoy, one of our Managing Directors, is the sole trustee of ABP Trust, and owns all of ABP Trust’s voting securities.
RMR LLC was founded in 1986 to manage public investments in real estate and, as of March 31, 2021, managed a diverse portfolio of real estate and real estate related businesses. RMR LLC provides management services to four publicly traded equity real estate investment trusts, or REITs: Diversified Healthcare Trust, or DHC, which owns medical office and life science properties, senior living communities and wellness centers; Industrial Logistics Properties Trust, or ILPT, which owns and leases industrial and logistics properties; Office Properties Income Trust, or OPI, which owns office properties primarily leased to single tenants and those with high quality credit characteristics, including the government; and Service Properties Trust, or SVC, which owns a diverse portfolio of hotels and net lease service and necessity-based retail properties. DHC, ILPT, OPI and SVC are collectively referred to as the Managed Equity REITs.
RMR LLC also provides management services to three real estate operating companies: Five Star Senior Living Inc., or Five Star, a publicly traded operator of senior living communities, many of which are owned by DHC; Sonesta International Hotels Corporation, or Sonesta, a privately owned franchisor and operator of hotels, resorts and cruise ships in the United States, Latin America, the Caribbean and the Middle East, and many of whose U.S. hotels are owned by SVC; and TravelCenters of America Inc., or TA, an operator and franchisor of travel centers primarily along the U.S. interstate highway system, many of which are owned by SVC, and standalone truck service facilities and standalone restaurants. Hereinafter, Five Star, Sonesta and TA are collectively referred to as the Managed Operating Companies.
In addition, RMR LLC provides management services to private capital vehicles, including ABP Trust and its subsidiaries, or collectively ABP Trust, and other private entities that own commercial real estate, of which certain of our Managed Equity REITs own minority equity interests. In these financial statements we refer to these clients as the Managed Private Real Estate Capital clients.
As of December 31, 2020, RMR LLC had two wholly owned subsidiaries, each an investment adviser registered with the Securities and Exchange Commission, or SEC: Tremont Realty Advisors LLC, or Tremont Advisors, and RMR Advisors LLC, or RMR Advisors.
Tremont Advisors provides advisory services for two publicly traded mortgage REITs: RMR Mortgage Trust, or RMRM, and Tremont Mortgage Trust, or TRMT. RMRM, TRMT and the Managed Equity REITs are collectively referred to as the Managed REITs or the Managed Public Real Estate Capital clients. RMRM and TRMT focus primarily on originating and investing in first mortgage whole loans secured by middle market and transitional commercial real estate. Tremont Advisors has in the past and may in the future manage additional accounts that invest in commercial real estate debt, including secured mortgage debt. Employees of Tremont Advisors also act as a transaction broker for non-investment advisory clients for negotiated fees, which we refer to as the Tremont business.
On January 5, 2021, RMRM received its requested order from the SEC deregistering RMRM as an investment company under the Investment Company Act of 1940. Effective as of that time, RMRM’s investment advisory agreement with RMR Advisors was terminated and RMRM entered into a new management agreement with Tremont Advisors.
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
On January 6, 2021, RMR Advisors merged with and into Tremont Advisors with Tremont Advisors as the surviving entity.
On April 26, 2021, RMRM and TRMT announced that they have entered into a definitive merger agreement pursuant to which TRMT will merge with and into RMRM, with RMRM continuing as the surviving company. Tremont Advisors will continue to manage the combined company and has waived any termination fee that would otherwise be payable by TRMT as a result of the merger. The merger is expected to close during the third calendar quarter of 2021, subject to the requisite approvals by RMRM and TRMT shareholders and other customary closing conditions.
The accompanying condensed consolidated financial statements are unaudited. Certain information and disclosures required by U.S. Generally Accepted Accounting Principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, or our 2020 Annual Report. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.
Preparation of these financial statements in conformity with GAAP requires our management to make certain estimates and assumptions that may affect the amounts reported in these financial statements and related notes. The actual results could differ from these estimates.
Note 2. Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU No. 2016-13, which requires that entities use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. On October 1, 2020, we adopted ASU No. 2016-13. We have not historically experienced credit losses from our clients and as a result, the adoption of ASU No. 2016-13 did not have a material impact on our condensed consolidated financial statements.
Note 3. Revenue Recognition
Base Business Management Fees—Managed Equity REITs
We earn annual base business management fees from the Managed Equity REITs by providing continuous services pursuant to business management agreements equal to the lesser of:
the sum of (a) 0.5% of the historical cost of transferred real estate assets, if any, as defined in the applicable business management agreement, plus (b) 0.7% of the average invested capital (exclusive of the transferred real estate assets), as defined in the applicable business management agreement, up to $250,000, plus (c) 0.5% of the average invested capital exceeding $250,000; and
the sum of (a) 0.7% of the average market capitalization, as defined in the applicable business management agreement, up to $250,000, plus (b) 0.5% of the average market capitalization exceeding $250,000.
The foregoing base business management fees are paid monthly in arrears. 
We earned aggregate base business management fees from the Managed Equity REITs of $22,573 and $24,527 for the three months ended March 31, 2021 and 2020, respectively, and $44,128 and $51,918 for the six months ended March 31, 2021 and 2020, respectively.
Incentive Business Management Fees—Managed Equity REITs
We also may earn annual incentive business management fees from the Managed Equity REITs under the business management agreements. The incentive business management fees, which are payable in cash, are contingent performance based fees recognized only when earned at the end of each respective measurement period. Incentive business management fees
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Table of Contents
The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
are excluded from the transaction price until it becomes probable that there will not be a significant reversal of cumulative revenue recognized.
The incentive business management fees are calculated for each Managed Equity REIT as 12.0% of the product of (a) the equity market capitalization of the Managed Equity REIT, as defined in the applicable business management agreement, on the last trading day of the year immediately prior to the relevant measurement period and (b) the amount, expressed as a percentage, by which the Managed Equity REIT’s total return per share, as defined in the applicable business management agreement, exceeded the applicable benchmark total return per share, as defined in the applicable business management agreement, of a specified REIT index identified in the applicable business management agreement for the measurement period, as adjusted for net share issuances during the period and subject to caps on the values of the incentive fees. The measurement period for the annual incentive business management fees is defined as the three year period ending on December 31 of the year for which such fee is being calculated.
We did not earn incentive business management fees from the Managed Equity REITs for the calendar years 2019 or 2020 and, as a result, we did not recognize any incentive business management fees for the six months ended March 31, 2021 or 2020.
Other Management Agreements
Managed Operating Companies
We earn management fees by providing continuous services pursuant to the management agreements from the Managed Operating Companies equal to 0.6% of: (i) in the case of Five Star, Five Star’s revenues from all sources reportable under GAAP, less any revenues reportable by Five Star with respect to properties for which it provides management services, plus the gross revenues at those properties determined in accordance with GAAP; (ii) in the case of Sonesta, Sonesta’s revenues from all sources reportable under GAAP, less any revenues reportable by Sonesta with respect to hotels for which it provides management services, plus the gross revenues at those hotels determined in accordance with GAAP; and (iii) in the case of TA, the sum of TA’s gross fuel margin, as defined in the applicable agreement, plus TA’s total nonfuel revenues. These fees are estimated and payable monthly in advance.
We earned aggregate fees from the Managed Operating Companies of $5,374 and $6,297 for the three months ended March 31, 2021 and 2020, respectively, and $11,012 and $12,423 for the six months ended March 31, 2021 and 2020, respectively.
Managed Private Real Estate Capital
We earn management fees from the Managed Private Real Estate Capital clients based on a percentage of average invested capital, as defined in the applicable management agreements. These management fees are paid monthly in arrears.
We earned aggregate fees from the Managed Private Real Estate Capital clients of $1,271 and $687 for the three months ended March 31, 2021 and 2020, respectively, and $2,187 and $1,240 for the six months ended March 31, 2021 and 2020, respectively.
Property Management Fees
We earn property management fees by providing continuous services pursuant to property management agreements with the Managed Equity REITs and the Managed Private Real Estate Capital clients. We generally earn fees under these agreements equal to 3.0% of gross collected rents. Also, under the terms of the property management agreements, we receive additional fees for construction supervision in connection with certain construction activities undertaken at the managed properties equal to 5.0% of the cost of such construction. We earned aggregate property management fees of $11,024 and $11,708 for the three months ended March 31, 2021 and 2020, respectively, and $23,403 and $24,233 for the six months ended March 31, 2021 and 2020, respectively.
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Table of Contents
The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Other Agreements
Tremont Advisors is primarily compensated pursuant to its management agreements with RMRM (beginning January 6, 2021) and TRMT at an annual rate of 1.5% of RMRM’s and TRMT’s equity, as defined in the applicable agreements. Tremont Advisors waived any business management fees otherwise due and payable by TRMT pursuant to the management agreement for the period beginning July 1, 2018 until December 31, 2020. Tremont Advisors earned aggregate advisory services revenue from TRMT of $378 and $37 for the three months ended March 31, 2021 and 2020, respectively, and $415 and $73 for the six months ended March 31, 2021 and 2020, respectively.
Tremont Advisors may also earn an incentive fee under its management agreements with RMRM (beginning the second calendar quarter of 2021) and TRMT equal to the difference between: (a) the product of (i) 20% and (ii) the difference between (A) RMRM’s and TRMT’s core earnings, as defined in the applicable agreements, for the most recent 12 month period (or such lesser number of completed calendar quarters, if applicable), including the calendar quarter (or part thereof) for which the calculation of the incentive fee is being made, and (B) the product of (1) RMRM’s and TRMT’s equity in the most recent 12 month period (or such lesser number of completed calendar quarters, if applicable), including the calendar quarter (or part thereof) for which the calculation of the incentive fee is being made, and (2) 7% per year and (b) the sum of any incentive fees paid to Tremont Advisors with respect to the first three calendar quarters of the most recent 12 month period (or such lesser number of completed calendar quarters preceding the applicable period, if applicable). No incentive fee shall be payable with respect to any calendar quarter unless core earnings for the 12 most recently completed calendar quarters (or such lesser number of completed calendar quarters from January 5, 2021 for RMRM and September 18, 2017 for TRMT) in the aggregate is greater than zero. The incentive fee may not be less than zero. Tremont Advisors waived any incentive fees otherwise due and payable by TRMT pursuant to the management agreement prior to December 31, 2020. Tremont Advisors earned incentive fees of $620 from TRMT for the three and six months ended March 31, 2021.
RMR Advisors, which previously provided advisory services for RMRM until it merged into Tremont Advisors on January 6, 2021, was compensated through January 5, 2021 pursuant to its agreement with RMRM at an annual rate of 0.85% of RMRM’s average daily managed assets. Average daily managed assets included the net asset value attributable to RMRM’s outstanding common shares and cash on hand, plus the liquidation preference of RMRM’s outstanding preferred shares and the principal amount of any borrowings, including from banks or evidenced by notes, commercial paper or other similar instruments issued by RMRM. RMR Advisors or Tremont Advisors, as applicable, earned advisory services revenue of $751 and $743 for the three months ended March 31, 2021 and 2020, respectively, and $1,300 and $1,554 for the six months ended March 31, 2021 and 2020, respectively.
The Tremont business earns between 0.5% and 1.0% of the aggregate principal amounts of any loans it brokers. The Tremont business earned fees for such brokerage services of zero and $102 for the three months ended March 31, 2021 and 2020, respectively, and $259 and $782 for the six months ended March 31, 2021 and 2020, respectively, which amounts are included in management services revenue in our condensed consolidated statements of income.
Reimbursable Compensation and Benefits
Reimbursable compensation and benefits include reimbursements, at cost, that arise primarily from services our employees provide pursuant to our property management agreements at the properties of our clients. A significant portion of these compensation and benefits are charged or passed through to and were paid by tenants of our clients. We recognize the revenue for reimbursements when we incur the related reimbursable compensation and benefits on behalf of our clients. We realized reimbursable compensation and benefits of $13,159 and $12,823 for the three months ended March 31, 2021 and 2020, respectively, and $26,384 and $25,670 for the six months ended March 31, 2021 and 2020, respectively.
Reimbursable Equity Based Compensation
Reimbursable equity based compensation includes grants of common shares from our clients directly to certain of our officers and employees in connection with the provision of management services to those companies. The revenue in respect of each grant is based on the fair value as of the grant date for those shares that have vested, with subsequent changes in the fair value of the unvested grants being recognized in our condensed consolidated statements of income over the requisite service periods. We record an equal offsetting amount as equity based compensation expense for the value of the grants of common shares from our clients to certain of our officers and employees. We realized equity based compensation expense (income) and related reimbursements from our clients of $1,206 and $(290) for the three months ended March 31, 2021 and 2020, respectively, and $4,209 and $658 for the six months ended March 31, 2021 and 2020, respectively.
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Table of Contents
The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
Other Reimbursable Expenses
Other reimbursable expenses include reimbursements that arise from services we provide pursuant to our property management agreements, which include third party costs related to matters such as maintenance and repairs, security and cleaning services, a significant portion of which are charged or passed through to and were paid by tenants of our clients. We have determined that we control the services provided by third parties for certain of our clients and therefore we account for the cost of these services and the related reimbursement revenue on a gross basis.
We realized other reimbursable expenses reflecting corresponding amounts in revenue and expense of $75,208 and $84,227 for the three months ended March 31, 2021 and 2020, respectively, and $174,593 and $182,202 for the six months ended March 31, 2021 and 2020, respectively.
Note 4. Investments
Equity Method Investment
As of March 31, 2021, Tremont Advisors owned 1,600,100, or approximately 19.3%, of TRMT’s outstanding common shares. We account for our investment in TRMT using the equity method of accounting because we are deemed to exert significant influence, but not control, over TRMT’s most significant activities. Our share of earnings from our investment in TRMT included in equity in earnings of investees in our condensed consolidated statements of income was $303 and $324 for the three months ended March 31, 2021 and 2020, respectively, and $727 and $579 for the six months ended March 31, 2021 and 2020, respectively. We received aggregate distributions from TRMT of $847 and $353 during the three months ended March 31, 2021 and 2020, respectively, and $864 and $705 during the six months ended March 31, 2021 and 2020, respectively.
Equity Method Investment Accounted for Under the Fair Value Option
As of March 31, 2021, we owned 621,853, or approximately 4.3%, of TA’s outstanding common shares. We account for our investment in TA using the equity method of accounting because we are deemed to exert significant influence, but not control, over TA’s most significant activities. We elected the fair value option to account for our equity method investment in TA and determine fair value using the closing price of TA’s common shares as of the end of the period, which is a Level 1 fair value input. The market value of our investment in TA at March 31, 2021 and September 30, 2020, based on quoted market prices, was $16,872 and $12,152, respectively. The unrealized (loss) gain in our condensed consolidated statements of income related to our investment in TA was $(3,402) and $(2,200) for the three months ended March 31, 2021 and 2020, respectively, and $4,720 and ($762) for the six months ended March 31, 2021 and 2020, respectively.
Note 5. Income Taxes
We are the sole managing member of RMR LLC. We are a corporation subject to U.S. federal and state income tax with respect to our allocable share of any taxable income of RMR LLC and its tax consolidated subsidiaries. RMR LLC is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, RMR LLC is generally not subject to U.S. federal and most state income taxes. Any taxable income or loss generated by RMR LLC is passed through to and included in the taxable income or loss of its members, including RMR Inc. and ABP Trust, based on each member’s respective ownership percentage.
For the three months ended March 31, 2021 and 2020, we recognized estimated income tax expense of $1,992 and $2,612, respectively, which includes $1,462 and $1,901, respectively, of U.S. federal income tax and $530 and $711, respectively, of state income taxes. For the six months ended March 31, 2021 and 2020, we recognized estimated income tax expense of $4,748 and $6,336, respectively, which includes $3,486 and $4,678, respectively, of U.S. federal income tax and $1,262 and $1,658, respectively, of state income taxes.
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The RMR Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
A reconciliation of the statutory income tax rate to the effective tax rate is as follows:
Three Months Ended March 31,Six Months Ended March 31,
2021202020212020
Income taxes computed at the federal statutory rate21.0 %21.0 %21.0 %21.0 %
State taxes, net of federal benefit3.3 %3.9 %3.2 %3.7 %
Permanent items0.7 %0.1 %0.6 %0.2 %
Net income attributable to noncontrolling interest(10.2)%(10.1)%(10.1)%(10.1)%
Other (1)
 % %(1.5)% %
Total14.8 %14.9 %13.2 %14.8 %
(1)     In December 2020, the Internal Revenue Service and Department of Treasury released final regulations which, among other clarifications, established the effective date as it relates to limitations on the deductibility of certain executive compensation. The final regulations provide that the application of the limit applies to deductions after December 18, 2020. As such, during the three months ended December 31, 2020, we reduced our provision for income taxes for limitations applied prior to the effective date by $520, or $0.02 per diluted share, which reduced the effective income tax rate by 1.5% for the six months ended March 31, 2021.
ASC 740, Income Taxes, provides a model for how a company should recognize, measure and present in its financial statements uncertain tax positions that have been taken or are expected to be taken with respect to all open years and in all significant jurisdictions. Pursuant to this topic, we recognize a tax benefit only if it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that is greater than 50.0% likely to be realized upon settlement. As of March 31, 2021, we had no uncertain tax positions.
Note 6. Fair Value of Financial Instruments
As of March 31, 2021 and September 30, 2020, the fair values of our financial instruments, which include cash and cash equivalents, amounts due from related parties and accounts payable and accrued expenses, which include liabilities related to other reimbursable expenses, were not materially different from their carrying values due to the short term nature of these financial instruments.
On a recurring basis, we measure certain financial assets and financial liabilities at fair value based upon quoted market prices. ASC 820, Fair Value Measurements, establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1), and the lowest priority to unobservable inputs (Level 3). A financial asset’s or financial liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The following are our assets and liabilities that have been measured at fair value using Level 1 inputs in the fair value hierarchy as of March 31, 2021 and September 30, 2020:
March 31,September 30,
20212020
Money market funds included in cash and cash equivalents$357,041 $341,612 
Current portion of due from related parties related to share based payment awards2,463 4,298 
Long term portion of due from related parties related to share based payment awards11,428 7,764 
Current portion of employer compensation liability related to share based payment awards2,463 4,298 
Long term portion of employer compensation liability related to share based payment awards11,428 7,764 
Note 7. Related Person Transactions
Adam D. Portnoy, one of our Managing Directors, is the sole trustee of our controlling shareholder, ABP Trust, and owns all of ABP Trust’s voting securities and a majority of the economic interests of ABP Trust. As of March 31, 2021, Adam D. Portnoy beneficially owned, in aggregate, (i) 160,502 shares of Class A common stock of RMR Inc., or Class A Common Shares; (ii) all the outstanding shares of Class B-1 common stock of RMR Inc., or Class B-1 Common Shares; (iii) all the
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Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(dollars in thousands, except per share amounts)
outstanding shares of Class B-2 common stock of RMR Inc., or Class B-2 Common Shares; and (iv) 15,000,000 Class A Units of RMR LLC. Adam D. Portnoy and Jennifer B. Clark, our other Managing Director, are also officers of ABP Trust and RMR Inc. and officers and employees of RMR LLC. Matthew P. Jordan, our Executive Vice President, Chief Financial Officer and Treasurer, is also an officer of ABP Trust and an officer and employee of RMR LLC.
Adam D. Portnoy is the chair of the board of trustees of each of the Managed Equity REITs, the chair of the board of directors of each of Five Star and TA, a managing trustee or managing director of each of the Managed REITs, Five Star and TA, a director of Sonesta (and its parent) and the controlling shareholder of Sonesta (and its parent). Jennifer B. Clark, our other Managing Director, is a managing trustee of DHC, a managing director of Five Star and a director of Sonesta (and its parent), and, until January 5, 2021, she served as a managing trustee of RMRM. Ms. Clark also serves as the secretary of all our publicly traded clients and Sonesta.
As of March 31, 2021, Adam D. Portnoy beneficially owned, in aggregate, 6.3% of Five Star’s outstanding common shares, 1.1% of SVC’s outstanding common shares, 1.2% of ILPT’s outstanding common shares, 1.5% of OPI’s outstanding common shares, 1.1% of DHC’s outstanding common shares, 4.5% of TA’s outstanding common shares (including through RMR LLC), 2.3% of RMRM’s outstanding common shares, and 19.4% of TRMT’s outstanding common shares (including through Tremont Advisors).
The Managed REITs have no employees. RMR LLC provides or arranges for all the personnel, overhead and services required for the operation of the Managed Equity REITs pursuant to management agreements with them. All the officers of the Managed Equity REITs and ABP Trust are officers or employees of RMR LLC. All the officers, overhead and required office space of TRMT and RMRM are provided or arranged by Tremont Advisors. All of TRMT’s and RMRM’s officers are officers or employees of Tremont Advisors or RMR LLC. Many of the executive officers of the Managed Operating Companies are officers or employees of RMR LLC. Some of our executive officers are also managing directors or managing trustees of certain of the Managed REITs and the Managed Operating Companies.
Additional information about our related person transactions appears in Note 8, Shareholders’ Equity, below and in our 2020 Annual Report.
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(dollars in thousands, except per share amounts)
Revenues from Related Parties
For the three months ended March 31, 2021 and 2020, we recognized revenues from related parties as set forth in the following table:
Three Months Ended March 31, 2021Three Months Ended March 31, 2020
TotalTotal
ManagementManagement
and AdvisoryTotaland AdvisoryTotal
ServicesReimbursableTotalServicesReimbursableTotal
RevenuesCostsRevenuesRevenuesCostsRevenues
Managed Public Real Estate Capital:
DHC$8,652 $30,901 $39,553 $9,145 $31,902 $41,047 
ILPT4,173 4,476 8,649 5,305 4,969 10,274 
OPI8,628 41,930 50,558 9,480 47,089 56,569 
SVC11,281 3,354 14,635 11,777 5,284 17,061 
Total Managed Equity REITs32,734 80,661 113,395 35,707 89,244 124,951 
RMRM751 941 1,692 743  743 
TRMT998 672 1,670 37 621 658 
Total Managed REITs34,483 82,274 116,757 36,487 89,865